Algonquin Power & Utilities Corp. executives have signed an agreement to sell the company’s renewable-energy group (minus its hydroelectric operations) to LS Power Development LLC for what could be up to $2.5 billion.
Ontario-based Algonquin put its renewables businesses on the market a year ago and CEO Chris Huskilson said the planned divestment to LS Power, which covers 44 assets with more than 3 gigawatts of capacity, delivers “a deal at a compelling value for our platform business with strong assets and scale.” When concluded as planned late this year or early next, Algonquin will net about $1.6 billion in cash after covering construction financing, tax and transaction costs.
New York City-based LS Power is a developer of and investor in energy infrastructure that has committed more than $13 billion in equity to various projects since its founding in 1990. Among its holdings are storage venture REV Renewables, electric-vehicle charging company EVgo and independent power producer Lightning Power. Its Algonquin acquisition plan also comprises a pipeline of wind, solar, battery storage and renewable natural gas projects with total capacity of 8 gigawatts.
“This business complements our existing fleet of more than 19,000 MW of top-performing renewable, energy storage, flexible gas and renewable fuels projects,” LS CEO Paul Segal said in a statement. “We believe this platform will play a significant role in meeting the challenges of rising electric demand and advancing the energy transition.”
Along with announcing the renewables news, the Algonquin team reported second-quarter profits of $201 million on revenue of $599 million. Accounting for various items, mostly a change in the value of its investments, adjusted net earnings climbed to $65.2 million from $56.2 million in the second quarter of 2023. Huskilson also announced that COO Johnny Johnston has left the company as part of a reorganization that has elevated Chief Human Resources Officer Sarah MacDonald to chief transformation officer.
On a conference call with analysts, Huskilson and CFO Darren Myers said they intend to use their proceeds from the LS deal to pay down some of Algonquin’s debt and more broadly give them flexibility as they seek to improve the efficiency of the company’s regulated operations. That will include catching up to a handful of rate-case filings—including in Missouri, New Hampshire and California—that have been or are being delayed, in part because of attention that has been paid to a new customer service technology platform.
More broadly, Huskilson and Myers told analysts they are pulling back on capital spending plans—dollar details will come later this year but the guidance for now is “slightly above maintenance requirements”—and that directors have slashed Algonquin’s dividend by 40%. Those moves will help preserve cash as they work through rate cases and try to catch up to expenditures the company has already made.
The capex message, one analyst noted, is “kind of going the opposite way” from what Huskilson had suggested in recent quarters, which led the CEO to say his team is prioritizing making Algonquin a better business.
“At the end of the day, we also believe we need to put a substantial amount of discipline into this business. As we work through accountability and how we want to structure and run our utilities, at the end of the day, the main word is discipline,” Huskilson said. “We want to be absolutely certain that we understand [how,] when we put a dollar of capital into the business, […] we’re going to recover that dollar of capital.”
Huskilson later added that “we’re talking about a few years” of a lower capex as his team works through rate cases and tries to improve Algonquin’s profitability by recovering some past investments.
Investors and analysts didn’t like the conservative nature of Huskilson’s and Myers’ comments and outlook. Shares of Algonquin (Ticker: AQN) tumbled more than 12% to $5.41 Aug. 9, the day of the renewables divestment and dividend cut news. In afternoon trading Aug. 13, they were changing hands around $5.10. They are down about 10% over the past six months, which has cut the company’s market capitalization to about $3.9 billion.
Wells Fargo analyst Neil Kalton told clients the recent stock price drop was justified given that Algonquin’s leaders had previously said they wouldn’t push for a renewables sale if there was a risk they would have to cut the company’s dividend. Suggesting that Algonquin needed to pursue the deal out of a position of weakness, Kalton has lowered his price target for the stock to $6 from $8.50.
